After the Berlin conference of 1984 and after
consequent consolidation of British rules in the country, the imperative of the
colonial economics hegemony was put in place. Lucky enough, the time when most
of the companies were working for raw material sources. Activities of the alien enterprises
were therefore contacted one export commodities such as mineral and
agricultural products as well as public utilities like commercial activities.
Due to the size of the Nigerian markets, foreign inventors came form France and
compete with British firms which developed in the sharing of the markets with
price understanding under the auspices of participants of Association of West
African Merchants (AWAM), the continue entry of new firm from other parts of
the world and the emergence of indigenous entrepreneurial class led to great
competition in the country’s commercial activities. By 1950,
pioneer-manufacturing establishment started emerging because of the nationalist
movement. The immediate past independence policy, witnessed considerable
legislation aimed at promoting development in the country.
Nevertheless, over three and half
decades after independence, the inflow of foreign private investment was not
very substantial compared to the inflow of investment into countries of similar
political history (Malaysia, Singapore, Thailand etc). Despite the World Bank
report on the review of incentive system, very little was done until the
establishment of industry development coordinating committee (IDCC) in 19988.
The IDCC was to act as the top agency for facilitating and attracting foreign
private investment inflow into the country.
Furthermore, monitoring, and
miscellaneous decree of 1971 authorized any person including non-Nigerians to
invest, create and transfer any interest on security trade in Nigeria capital
markets. With the coming into effect of foreign exchange market, (FEM) decree,
the exchange is null and void.
The combined implication of Nigeria
investment promotion commission and foreign exchange market, is to remove any
bottle-neck disturbing massive inflow of foreign direct investment into the
country by making investment climate very transparent like that of South Asian
countries.
From the microeconomic point of
view, the contention among various schools of through on maximization theory
have a consensuses agreement that investment should necessarily continue
whether within the country or across the boarder until the marginal return from
such investment equals the given average cost of capital invested.
In order words, the perspective of
the cost economics of foreign direct investment (FDI) would continue to import
their resources to complement the domestic deficit in financing profitable
opportunities unit the level where there is no more net profit from such
decision. A brief look at the following theoretical explanation will surface.
Using the theory of international
trade, (capital arbitrage and cost capital theory) foreign investors move their
capital resources in response to change in the rate of return. The capital is
expected to move from capital abundant countries to capital scare countries in
response to higher productivity of capital until the rate of return equalizes.
This is to say that the transitional corporations (TNCs) and the multinational
corporations (MNCs) move their resources based on profit maximization alone.
While the theory is sufficient for explaining portfolio investment, it says
nothing about control of effective voice in the management of foreign direct
investment. Foreign direct investment is more common among developed countries
of the world.
A further theoretical attempt
investment is the determinants of foreign investment are that based on the pure
theory of the firm, using macroeconomic analysis. With prefect market as a
basic assumption, the theory opines that the transnational corporation invest
in overseas when their investment at home has reached an optimum level and
further investment at home are likely to suffer diminishing return to scale.
The desire is premised on the decision of the business firm to add to the
existing plant and equipment for expanding output as long as they find
profitable market for their products.
In the view of John Maynard Keynes,
general theory, any project with an internal rate of return that greater than
the market interest rate of return is equal with the market interest rate and
further investment will yield diminishing return. Like the predecessor, the
theory of international trade, the theory of the firm suffer the same defect
because of its rigid assumption of perfect market as behaviour of transnational
corporations (TNCs) resemble oligopolistic market rather than perfect markets.
EMPIRICAL
LITERATURE REVIEW
According to the study carried out
by Kobrin (1997). Foreign direct investment is motivated by the desire to
maximize profit and minimize cost. One of the major elements in cost
minimization is the search for cheap labour. However, cheap labour alone with out
reference to productivity is irrelevant as high wage may be to high
productivity. In addition to cost of other inputs, as well as potential
difficulties arising from the operation in the undeveloped parts of the world
must be well analyzed.
Here, other factors such as
automation. Strike and different labour cost, social attitude and technical
consideration must be weighted simultaneously with labour cost. It must equally
be stressed that an alternative to seeking cheap labour is to substitute
capital and advanced techniques to automate machinery and method of working.
According to Okoh (1980), the
customary justification for the belief in the efficiency of tax stimulus does
not rely on empirical evidence, rather, the belief is based implausible
argument that business man in pursuit of gain will find the purchase of capital
goods more active if they cost less. In the study of the relationship between
tax policy and investment expenditure, using the neoclassical theory of optimal
capital accumulation, Robert E. (1984), used three major tax revision in the
past periods. The adaptation of accelerated method for calculating depreciation
in the internal revenue code of 1954. The investment tax credit for equipment
and machinery in the revenue act of 1982.
They concluded that the effect of
accelerated depreciation is very substantial especially for investment
structures. The effect of depreciation guide line of 1962 were significant but
their effects were confined to investment tax credit of 1962. They were guide
traumatic and left little room for doubt about the efficiency of tax policy.
This policy they said represent the ultimate liberalization since it is
equivalent to tax expenditure for purposes.
According to Omoregbe (1997), the
effectiveness of Industrial development coordinating committee (IDCC) led to
the promulgation of the new decree/ decree 16 and 17 of 1995 to arrest the
observed lapses in IDCC operations.
The intension of the decree is to
create a conclusive environment for foreign investors.
Inspite of the effect of the IDCC,
many aspect of the Nigerian economy remained incompatible with high spread
operational characteristics of modern international mobility. It include lack
of efficiency and operating mechanism that plague Nigerian’s existing operating
system in addition to the absence of unified highly authoritative lending body
for administering foreign investment regulation thus, the need to establish the
Nigerian enterprise promotion commission (NEPC) of 1995 by Nigerian investment
promotion decree of 1995. The promotion is charged with the co-ordination and
monitoring of all investment promotion in the country.
According to Bobcleark, (1998), the
night mare of the manufacturing sector are poor electricity supply, high cost
of generator, high cost of telephone, high cost of distribution with constant
fuel shortages, problem of adulteration, liberalization of trade and resultant
disruption of local markets and lack of effective and reliable infrastructure.
In the study conducted by Nenyiaba (1990).
He argued that it is not possible to determine that a given investment would
have taken place but for tax concession. It appears quite unreasonable to
believe that in a country like Panama, there would have been an absence of
investment on the part of external firms, if there have been no tax incentive.